First-time homebuyers will encounter many different phrases and terms that you have probably never heard of before. But once you have sorted out things with your mortgage company in Tempe, made an offer on a property, and have negotiated terms with the seller, you will come across the term “due diligence.”
This is one of those things that every homebuyer really has to understand, so here’s a basic guide to understanding what due diligence is all about.
What exactly is due diligence?
Basically, due diligence is the period of time starting from the time the seller accepted your offer on a home and ending prior to closing. The exact length is usually negotiable and extendable.
The most important benefit that due diligence offers is that it gives you the chance to identify potential problems or issues regarding the property so that you could bring it up with the seller before moving forward with the transaction. This way, you could renege on the deal if the seller fails to meet your contingencies.
What do you need to during the due diligence period?
There are various things you need to do during this period. First and foremost, you need to get the property appraised so you can find out its fair market value. Depending on the seller, you might have to pay the appraisal costs upfront or during closing.
Your lender will use this appraisal to assess whether how much you’re looking to borrow is appropriate or not. You also need to get the entire property professionally inspected and checked for pests as well.
What else should you do?
Aside from the essential checks above, you should likewise conduct extra research on the area that you will be moving to if everything else checks out. For instance, drive around the neighborhood at different times of day to check out traffic conditions and speak to nearby neighbors.
You must likewise check the area’s crime statistics. If you have children, you should also check out potential schools and any nearby parks and playgrounds. In addition, consider getting a property survey if you can’t find one on record so you can find out about potential issues that can crop up later.
Can you back out of the deal after the due diligence period?
Once the period of due diligence ends, you will lose certain protections. For example, if you back out of the deal and the due diligence period has already ended, the earnest money deposit you gave to the seller will remain with the seller, unless you are able to prove that there was an issue with the property title or serious home defect that the seller tried to cover up.
The seller can also sue you to recover the money she or he lost because of the sale not pushing through, or even request that the sale goes through with approval from a judge.
Put simply, if you are intent on buying a home, you need to be serious about the due diligence period. Or else, you could be setting yourself up for a big mess.